Pace of J$ depreciation tempered by BOJ’s intervention

Durrant Pate/Contributor

The United States (US)-dollar money market in Jamaica remains stable and moderately liquid, despite some market changes that may impact liquidity.

These include Improved tourism inflows, remittance flows and US-dollar sales by Bank of Jamaica (BOJ) continue to support US-dollar liquidity. However, analysts at NCB Capital Markets in Jamaica are contending that, with inflation in the US accelerating to 9.1 per cent along with reports of liquidity strains in US markets, this could adversely affected US-dollar liquidity locally in the upcoming months.

They also point to the fact that the 9.1 per cent inflation is the fastest year-over-year jump since 1981. However, the analysts have noted a counteraction to the possible threat to US-dollar liquidity, which is the BOJ’s continued injection of US-dollar liquidity into the market.

There were a series of B-FXITT auctions last week as the Central Bank remains committed to maintaining relative stability in the foreign exchange (FX) market. It is anticipated that BOJ will continue to push US-dollar liquidity, as it continues to fight inflation.

In the meantime, broker demand in the market for the US-dollar remains at 30-days and longer-tenured funds. For the week ending July 15, 2022, the Jamaican dollar depreciated by 0.34 per cent relative to the US-dollar to close the week at a selling rate of J$152.61.

The overall pace of depreciation was tempered by BOJ’s intervention in the market. Due to concerns about the depreciation of the currency, the BOJ intervened three times with a total of US$60 million, which tapered excess demand.

Additionally, liquidity in the Jamaican-dollar market remains tight and, as such, the BOJ’s intervention resulted in further Jamaican-dollar liquidity constraints in the market, while satisfying end-user demand in the FX market.